When it does come to market, the rating agencies will step in toplay their traditional role in evaluating the paper. And with thatpiece in place, Ostema says, lenders may finally begin to givedevelopers building LEED-certified buildings a break onconstruction financing.Right now, he reports, the opposite is true."Banks are finding that they need to price loans at a risk premiumbecause these technologies are new and unproven."Besides that,another problem is that banks cannot sell loans on the secondarymarket because no pools have yet to be credit-rated, he says.Bottom line, according to Ostema: "S&P and Moody's need to puta stamp of approval on that green paper so banks will want to holdit."


Ostema's view of the high cost of green building may come as asurprise – and indeed, not all developers would agree. Intuitively,it would make sense that a building built to standards that wouldlead to lower operating costs and other benefits for tenants wouldbe of greater value and thus worthy of prime financing. Accordingto Ostema, though, the triple whammy of unproven technology, lackof a secondary market and unrated paper trumps common sense – forthe moment, at least."I can tell you that the goal for a lot ofbanks is to offer a green lending program in the neighborhood of 20to 30 basis points better than traditional debt—when marketconditions are right. That is not a huge interest-rate cut, but ona $100 million loan, it is significant," Ostema says.


Jim McDonald, a principal with the Group 100 in Calabasas, CAagrees that this space is a nascent one – and that lenders arehesitant to embrace the 'intuitive' case for building green."Thereare very few buildings being designed with LEED certificationstandards in mind from the get-go, so we haven't yet had theexperience of folding any extra costs resulting from a LEEDstandard into construction financing," he tells GlobeSt.com. "Infact, whereas some promoters of LEED certification claim that thecertification is cost-neutral, this calculation involves a timefactor, such as five or 10 years of operating savings which mayresult from building to LEED standards."In other words, he says,there is relatively little hard evidence about the true costs ofLEED standards, and there is almost certainly some up-front costfor which increased loan amounts will be sought. "I don't believethat there are good data on this as yet."I would like to think thatenlightened lenders will come to believe that buildings built toLEED standards will have greater retained and/or increased valueover time, with resulting benefits to the lender. However, I don'tthink that there is actual hard evidence for this as yet."


The case, though, is there, says Joseph Marger, partner in ReedSmith's Real Estate Group in New York City, who enumerates thefinancial benefits of green building for GlobeSt.com. First, hesays, "although LEED certification can add to costs to build, loweroperating costs means ability to collect higher base rents in acompetitive market."Second, various status levels of LEEDcertification allow building owners to choose the appropriate costoutlay level.Third, quality, progressive tenants are attracted toLEED buildings -- evidence suggests higher retention and betterhiring ability for green tenants.Fourth, certain types of tenantsmay need to be in -- or find added value in being in -- a "green"building for political reasons, or to satisfy progressive clientsthat are going green themselves, Marger says.Finally, LEEDbuildings may have a leg up on future green compliance standards --and potential costs-- enacted by municipalities, etc.

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